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Must Our Club File a Partnership Tax Return?

Q. Is it mandatory that a club files a partnership return every year? I joined an investment club that started this year. There are 15 members and the income from dividends will be less than $50.00. Certain members and officers claim that we don't need to file a return.

A. Investment clubs that are formed as partnerships must file a Form 1065 Partnership Return with the IRS every year of their existence, no matter how much or little they may earn in dividends or capital gains. The partnership itself isn't taxed on its income and gains, but the individual partners are required to report their share of gains and income on their own tax returns each year. Form 1065 is an informational filing, but it is mandatory for any partnership, and there are steep penalties for not filing. NAIC provides Instructions for Completing Form 1065 for investment clubs that can be helpful in completing this document.

Clubs should also distribute a Schedule K-1 to each partner by the end of January, as well, detailing each partners' share of income and expenses for the prior year. You can review NAIC's Instructions for Completing Schedule K-1 on their site, as well.

Users of NAIC Club Accounting software may be interested in purchasing the annual tax add-on program. This software will automatically generate K-1's for each partner and the Form 1065 that can be returned to the IRS. The software is generally available for a nominal fee in late January or February of each year, as soon as the IRS finalizes the forms.

Doug Gerlach is ICLUBcentral's Investment Club Therapist, helping clubs and their members to operate more efficiently and more harmoniously. Doug's latest book, Investment Clubs for Dummies is the ultimate guide to starting and running a club, packed with tips and insight about club operations, education and investing. He is the author of several other popular investing books, including The Complete Idiot's Guide to Online Investing and The Armchair Millionaire. Doug has been a member of the NAIC Computer Advisory Group's Board of Directors since 1995. For more of Doug's advice on online investing, visit

Got a question about investment clubs? Ask Doug!

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